Purchasing a Property to Flip it

Flipping properties has been going on for a long time, so it may be something with which you are familiar. There are two fundamental methods for flipping a home. The first, and most common method, is to purchase a home, fix or update it, and then sell the home at its new valuation. The other way that people flip homes is to buy property during a time when property prices are down, and then selling the house once the real estate market goes back up. While waiting for the property prices to increase, you can rent out the home to gain some income.

Finding A Home to Flip

Those who are successful at flipping property know that location is a key ingredient. Flipping property only works if the demand for homes is strong in that locality. Study area sales figures. If there is a neighborhood with a few homes on the market that haven't sold in months or years, you'll need to avoid that area. The longer a home sits on the market, the farther the sales price drops before it sells.

One way to purchase inexpensive properties is by searching for bank foreclosures through the internet and papers. These houses may or may not require renovations or repairs, so make sure you have a reliable home inspector who can tell you if there are issues that need attention. Bank foreclosures can cost thousands less than the value of real estate in that area. Once repairs are made, you stand to earn tens of thousands of dollars in profit when the house sells.

You can also look for homes with owners who have been unable to keep up with the necessary repairs. Often, these homeowners are willing to drastically cut the price of their home in order to sell quickly. Again, you will need to make the repairs to increase the home's value before you sell it, but there is still a lot of money to be made.

Those who are skilled in property flipping tend to look for one of four words in real estate listings, because they signify desperation on the homeowner's part:

• Fixer-Upper




• Foreclosed




• Must Sell




• Vacant

Financing the House you Plan to Flip

Recent changes in the world of mortgages are making it more difficult to gain financing for flipping homes. It still can be done. It works best if you have equity in your home already. You'll borrow the money against your home and then pay it back as soon as the property you are flipping sells. You can also take out a mortgage listing the property as an investment for rental, but make sure you understand any stipulations set forth by the bank.

Regardless, any bank offering you a mortgage loan to flip a house will usually loan 80 percent of the home's value. You need to find alternate ways to gain that other 20 percent; many have used plastic or unsecured lines of credit. Keep interest rates in mind when selecting these options. If it takes months to sell the home, you'll be paying on your credit cards in the meantime.

The best way to finance a home you plan to flip is by finding a loan officer who has handled them before. If you find the right lender, it's possible to gain funding for 100 percent of the home's value, plus an additional amount towards renovations.

Make Sure You Know Your Financing

You need to fully understand the terms of the mortgage and the implications of the regulations on your home. For example, some lenders force you to keep the home for at least six months. Can you afford to keep the house for six months, as well as the undeterminable amount of time it will take to find a buyer? Make sure you have the income to cover these expenses before you make the purchase.